WHAT IS Claims-Made Policy

Claims-made policy refers to an insurance policy that provides coverage when a claim is made against the policy, regardless of when the claim event took place. A claims-made policy is most likely to be purchased when there is a delay between when claims occur and when they are filed. Business insurance policies are often offered as either a claims-made policy or an occurrence policy. While the claims-made policy provides coverage for claims when the event is reported, the occurrence policy provides coverage when the event occurs.

BREAKING DOWN Claims-Made Policy

A claims-made policy is a type of insurance policy most commonly used to cover the risks associated with business operations. For example, these policies are often used to cover the potential for mistakes associated with errors and omissions (E&O) in financial statements. They are also used to cover businesses from claims made by employees, including wrongful termination, sexual harassment, and discrimination claims.

These claims may be made against a policy months after the claims event takes place. This type of liability is referred to as employment practices liability, and may also cover the actions of directors and officers of the business.

Insurance companies may also offer claims-made and reported policies, which are considered less desirable than a standard claims-made policy because claims must be reported during the policy period in order for the claim to be covered. This reduces the amount of time that a business can expect to be covered, which can be a problem in situations when many months may pass between the claim event and the claim being made.

Differences Between Claims-Made and Occurrence 

Nearly all liability policies fall into one of two categories, either claims-made or occurrence.

Coverage for a claims-made policy is triggered by a claim being made while the policy is in force. The insurance company is obligated to defend the policyholder and pay for the claims. The insurance policy will include a specified period of time in which coverage applies, and any claims made during that time period are covered under the policy. This type of trigger is different from an occurrence policy, which is based on the time in which the claim event occurred, since the occurrence policy trigger only covers claims that come from incidents that fell during a specified time period. Occurrence policies don’t specify when the accident must take place, as long as the injury or damage it causes occurs during the policy period.